“We’re slowing our expansion,” Toshiyuki Suzuki, a
managing executive officer, said in an interview in Tokyo
yesterday. The company will shed 24 commodity ships in the year
starting April 1 to offset new vessels, rather than using
incoming ships for growth, he said.

The ship operator, based in Tokyo, has also postponed plans
to expand its dry-bulk fleet to 300 vessels from about 250 to
March 2018 at the earliest as ship deliveries outpace China
demand for iron ore and coal. The Baltic Dry Index, a benchmark
for commodity-shipping rates, has tumbled about 40 percent in
the past year, prompting some operators to pare their fleets.

“Freezing the expansion is better than doing nothing at
all,” said Ryota Himeno, an analyst at Barclays Plc. “Still,
the dry-bulk sector is very competitive with lots of players.
It’s not the place to aggressively expand. It would be better to
invest in car carriers and liquid natural gas ships.”

Kawasaki Kisen had intended to have 300 dry-bulk ships by
March 2017. The company, which also operates other vessels
including container ships and car carriers, last month cut its
profit forecast for the year ending March to 2 billion yen ($24
million) from 8 billion yen.

Smaller Fleet

“There are just too many new ships coming online,” Suzuki
said. “Unless there’s an unexpected boost to demand, rates are
unlikely to increase significantly.”

Nippon Yusen K.K., Japan’s biggest shipping line, also last
month reduced its annual profit forecast because of tumbling
freight rates. The company in July said it will pare its total
number of ships to 855 from 876 in the two years ending March
2014.

Mitsui O.S.K. Lines Ltd., which expects a full-year loss,
intends to cut its total fleet to 940 ships at the end of March
2013 from 981 vessels a year earlier.

Kawasaki Kisen fell 4.6 percent, the biggest drop in three
weeks, to 103 yen at the close of Tokyo trading. The stock has
declined 26 percent this year, compared with a 10 percent gain
in the Nikkei 225 Stock Average.

The company will also repay 25 billion yen of convertible
bonds due in April from existing reserves, Suzuki said. The
company has about 150 billion yen of cash and near cash. There
are no plans to sell more bonds as it’s “not good timing,” he
said.

The ship operator is rated BB by Standard & Poor’s, two
levels below investment grade. The cost to insure its debt
against default for five years was 750 basis points yesterday,
compared with 500 basis points a year earlier, according to CMA
data.